Dollar soars and Scotch spooked - how the world markets reacted to Donald Trump election triumph

The dollar had its strongest surge since the Brexit referendum and Wall Street stocks reached record levels but European stocks fell back with concerns over the impact of Trump tariffs on exports.

In the UK, the FTSE 100 initially jumped by around 1.5 per cent when the markets opened on Wednesday with the certainty of a coming result boosting investor confidence.

By midmorning, the index remained 1.2 per cent up when Trump declared victory though it ended the day 0.07 per cent down amid concerns over volatility in the bond markets.

Elsewhere in Europe, the German Dax index was down 1.1% and the French Cac 40 was down 0.5%.

Whilst US markets rallied, economists warned Trump’s economic strategy, and tariff plans in particular, would shock the UK economy.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Fresh nervousness has been sweeping financial markets after Donald Trump’s triumphant win.

“His policies look set to increase inflationary pressures and swell the US deficit even further, with knock-on effects expected for the UK economy.”

Markets were shaken by a jump in Treasury yields due to the potential impact of swathes of tariffs and tax cuts.

The potential inflationary impact of this and the related upward pressure on interest rates caused UK housebuilders to fall during the session.

Spirits giant Diageo was another major faller amid concerns its Scotch products could be among those hit with fresh tariffs.

However, some London-listed businesses with significant US domestic operations, such as Ashtead, made significant gains.

The pound was down about 1% against the US dollar, at 1.292, with the American currency making sharp gains on the back of Mr Trump’s victory.

The Dow Jones index rose 3.1% after trading opened on Wednesday.

Economists said investor sentiment in the US is being bolstered by the prospect of a lower tax environment under a Trump presidency, while the implementation of trade tariffs could strengthen the US dollar.

Joe Nellis, economic adviser to UK accountancy firm MHA, said: “The recent UK Budget showed how our economy really needs to start growing. A key part of that expansion must come from international trade.

“With Trump winning a second Presidency and the Republicans taking control of the Senate there is a real concern that the tariffs that he threatened in the election campaign will be introduced and stifle any recovery in trans-Atlantic trade.

“The EU is still our single biggest potential market and we are a relatively small economic power. If our businesses find it too challenging and expensive to trade with the US, will they turn their attention to the EU as a more user-friendly alternative?

“Either way Starmer and his team building a good relationship with the incoming Administration will become vitally important to try and dampen down the worst excesses of any trade wars.”

The rising dollar also reflects expectations that Mr Trump’s policies will add to inflation in the economy and keep interest rates higher for longer, experts said.

Samuel Tombs, chief US economist for Pantheon Macroeconomics, said it was raising its forecast for US inflation under the expectation that Mr Trump will introduce higher tariffs on all imports next year.

This would give the Federal Reserve less scope to ease interest rates, he said.

Nevertheless, the knock-on impact on the UK economy and countries around the world continues to come under the spotlight.